John Yesudass, Chairman of Wireless Gadgets India, makers of 'Techberry' brand mobile phones said, "We were earlier charging four per cent tax. Now we are absorbing increase in VAT. We do not want to increase the cost of mobiles."

The increase would only result in customers buying products from neighbouring states where VAT is only four per cent, he said. According to ICA, Tamil Nadu witnessed a 10.5 per cent growth in 2011-12, generating revenues of Rs 2,375 crore.

VAT revenue in mobile phones at four per cent for this period was Rs 95 crore, growing at 10 per cent per annum, it said. Mohindroo said the 14.5 per cent VAT would see a dip of 67 per cent in legal sales of mobile phones (phones sold with bills) at Rs 780 crore, compared to the previous year.

However, the grey mobile phone market would see sales grow from almost nil to Rs 1,820 crore in the same period, he said. He warned of a serious dent on the mobile manufacturing and components industry sector in Tamil Nadu, now considered a "hub". "Mobile phones cater not only to the Indian market, but also to the world market.

Our efforts to promote growth of the industry and build the industry for parts and components may get nullified" (with imposition of this additional VAT), he said.